Tuesday, January 24, 2006

I'm Poor - How Do I become Wealthy

You don't even become rich overnight - wealthy requires a plan and time.

Get rich quick schemes have one advantage - they can change you from
poor to broke. Sometimes as Ben Franklin said - get rich schemes will just get you in jail.

Poor is an attitude and a life style - you will need to want to change if you are to become broke.

Broke is a temporary condition before you ascend to comfortable.

You will not become wealthy with a job - however much we earn - we can find a way to spend it.

The first step out of broke is to acquire assets. Once you own something that is exclusively yours, you are no longer poor. A savings account works, but is easy to spend, has its interest taxed yearly, and even with auto withdrawal from paychecks is a bit too ready of cash.

Buying a house works, sometimes. This is probably not one of those times. Even if property prices continue to rise, an unlikely possibility, the dollar they are priced in will probably fall. In this environment you won't build lasting wealth by making payments.

Unless you pay yourself.

For those of you that understand speculation, you can come back for Friday's post because we are now going to talk about (gasp) long term

Buy stocks for $4

You can afford this, even if you are poor. Minimum account size is $20.00, take it out of your lottery contributions. Choose automatic dividend reinvestment. Set it up to take a few dollars or more from your paycheck or bank account regularly.

Ten percent of your pay would be great, you will be paying yourself before you spend it on others.

Once you own 100 share of a solid company, you will no longer think poor. Depending on the company, you may be broke, but you will be on your way up. Your attitude toward life will probably change.

Yes we are probably entering a depression. In ten to fifteen years we should exit it. If the country you live in still exists, you will have quite the basis to grow in the next period of good times.

I could be wrong, we may never see depression again - very good. I am betting however on the history of the human race - three steps forward, two back.

Here also is a new write up by Doug Casey, note it is labeled an advertorial. Doug is an honest kind of guy - most of those that create wealth are. Doug sees a similar bleak future as myself - and he is a proactive speculator.

So if the future is bleak, why start investing now?

  • I, and other contrarians, could be wrong
  • A good habit, once formed, can grow and develop other good habits
  • Dollar cost averaging

Dollar cost averaging is a financial trick you play on yourself.

If you spend ten dollars a week to buy a solid company with stock priced at $20.00 a share, you are buying a part of that company - at half a share a week. If the price per share goes up - you make money.

What if the price goes down? The comic's response is don't buy it in the first place.

In reality you keep up your ten dollars a week through the whole depression. When the stock is at $10.00 per share, you are buying a share a week, if it drops to $5.00 a share you are buying two shares a week. When the depression ends you will own a larger part of the company, more shares, than if the price had stayed at $20.00 per share.

Your average price per share is now well below $20.00, as the price goes up in good times, you hit break even and beyond sooner - and start gaining wealth.

After you have 100 shares of the first stock, switch to a second stock. You will know more by then, and can select one in tune with the times. Every time you get to a hundred shares switch your investment choice. At some point you may decide to re-read this blog and start speculating.

From poor to wealth, step by step.

Make that first step now.

Buy stocks for $4

Allan R Wallace



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